Home to nearly 100 million people, Egypt is the most populous nation in the Middle East and North Africa, and a huge market with considerable scope for new IT and telecoms services.

The opportunities are particularly clear in the area of financial technology, or FinTech. One big reason for this potential, Ayman Ismail of The American University in Cairo's School of Business explains is that, "Egypt has a low level of financial inclusion".

"We have around 14 million bank accounts and a similar number of postal service savings accounts," says Ismail, who holds the Abdul Latif Jameel Endowed chair of Entrepreneurship at the university.

World Bank data reveals that the Middle East has the lowest level of bank-account penetration in the world, averaging 14 percent of adults, in line with the in-country figure for Egypt.

This situation leaves a large percentage of the population "unbanked", and in Egypt even those with accounts are seldom maximizing their potential.

Challenges facing Egypt's FinTech

"Most debit cards are used for payroll, with very little use in purchasing or online. Similarly, access to credit is limited, both for consumers and SMEs," Ismail tells ZDNet.

"Banks traditionally have been conservative in extending credit. Most of their deposits go to investing in government treasury bills, with safe returns."

Alongside this situation, myriad financial forces also contribute to many Egyptians deciding to opt out of the types of banking behaviors that are well established in many other markets.

These factors include high interest rates of 17.7 percent, inflation at 17.1 percent in January 2018, the lowest since October 2016, according to Central Bank of Egypt data published by Trading Economics, low savings rates, and notorious levels of banking bureaucracy.

Against that backdrop, a number of stakeholders are seeking to unlock Egypt's FinTech potential, a drive that includes local startups and entrepreneurs, universities, NGOs, and various branches of the Egyptian government.

Progress in FinTech

As noted by lawyers Clifford Chance in a recent paper on FinTech in the Middle East, the growing number of FinTech startups in Egypt is being driven by the Egyptian government and the Central Bank of Egypt's intention to upgrade payment systems and move towards a cashless economy.

"The most mature sector is the provision of payment services, mobile cash, and smart wallets," the researchers write.

According to Cairo School of Business's Ismail, mobile wallets are currently available or being implemented in 12 banks, and three telecom operators. Figures are growing rapidly with more than nine million wallets already open, and 200,000 to 300,000 new wallets being opened monthly.

"It's likely that we'll have more mobile wallets than bank accounts in 2019," he predicts.

"Additionally, new FinTech startups are innovating by offering use cases to automate services in different sectors, such as companies, government, sports clubs, syndicates, and NGOs."

In turn, adoption of FinTech applications can create a further impetus for growth, by helping consumers, businesses, investors, and other stakeholders realize the benefits of these technologies in both terms of "economic efficiency and broader financial inclusion."

Drivers for change

Interestingly, some of the drivers for this adoption and innovation in Egypt are coming from perhaps unexpected sources.

As Clifford Chance observed, in 2016 the Central Bank of Egypt issued new regulations for cashless payments using smartphones, enabling banked and unbanked customers to "transfer money, pay telephone and other utility bills, and make donations".

"Mobile wallets are regarded as consumer-friendly and easily accessible," they add, although they also report that, "Only licensed banks can apply to provide mobile wallets and to act as an issuing bank to take cash deposits in exchange for issuing electronic money".

Cairo School of Business's Ismail says over the past year government has moved to revise regulations to allow for more openings on the mobile payments side, which is a great enabler for FinTech and financial innovation.

"There's a clear understanding among policy makers at [the] CBE [Central Bank of Egypt] of this reality," he adds. One manifestation of this shift is a new Payment Council, chaired by the president, which is making regulatory reforms to open up this area.

Another example of this openness to change can be seen in a policy paper published in September 2017 by the Federation of Egyptian Industries and the Federation of Egyptian Banks.

It outlines a plethora of potential policy remedies designed to move "away from a cash-dependent economy" by "introducing modernized non-cash payment mechanisms, bank-based or electronic, which seek to reduce the share of cash usage in the economy.

"The significance of this transformation lies in the fact that the continued use of cash for payments and settlements adversely affects economic development," the paper argues.

"High cash usage encourages the growth of the informal economy, limits opportunities for economic units to access available funding, facilitates tax evasion, disallows low-income groups the benefits of modern financial and banking services, weakens the savings culture in society, and facilitates money laundering, the financing of terrorism, drug trafficking, and other illegitimate activities."

The paper also offers clear recommendations to streamline processes for opening bank accounts, allowing unbanked customers to transfer funds between mobile accounts, as well as giving non-smartphone users access to mobile banking.

That mobile-banking access is especially important when, as the GSMA has noted, Egypt has yet to launch 4G services and 64 percent, or 32 million, of Egypt's inhabitants don't have access to the mobile internet.

Areas of potential FinTech growth

"Given the challenge of extending the access to credit using traditional means, new innovative FinTechs are needed to enable this transformation," Ismail says.

One area with potential, he believes, is microfinance, which is growing substantially.

"More private-sector and NGO MFIs are being setup, with substantial capital pushed their way," he adds.

Ismail, who's a former research fellow at the Kennedy School of Government at Harvard University, and who holds both a master's and PhD from the Massachusetts Institute of Technology, isn't just a detached observer.

Outside his day job, Ismail is a co-founder and chairman of mobile-wallet technology company PayMob, which has six million customers across Africa and the Middle East and describes itself as an infrastructure technology enabler.

Through his role at The American University in Cairo, he's the founder and director of the AUCVenture Lab. Launched in summer 2016 with the Commercial International Bank-Egypt, it is a startup accelerator that has helped 15 FinTech ventures during the past 18 months.

AUC's commitment to FinTech also includes a new partnership with the London-based private-investment fund Luqman Weise Capital to support the development of a FinTech concentration in the university's MSc finance program, the first of its kind in the country.

FinTech in Egypt, as elsewhere in the region, is clearly beginning to gain traction, challenging old financial practices and offering tech to meet the needs of many citizens.

In the past decade, the region's FinTech startups have raised over $100m in funding, a report from Wamda Research Lab and payment platform Payfort found. Meanwhile, 105 FinTech startups were launched in the region during 2016, a figure projected to grow to 250 by 2020.

Maintaining that rate of progress will be critical if FinTech's potential in Egypt and the wider region is to be realized.

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